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Suggestions to DIPP on FDI Regulatory Framework

November 22, 2009

1. The new FDI Regulatory Framework document resembles the Master Circulars released every year on 1 July by the Reserve Bank of India, which includes all circulars and clarifications issued over a year. In such a situation, what is the need to have a separate set of Master Press Note?

2. It is not wholly clear whether this Master Press Note will replace all earlier Press Notes or is merely intended to be a "manual" for guidance. At one place, it is stated that the Master Press Note “This Press Note consolidates into one document all the prior regulations on FDI and reflects the current „regulatory framework‟ on FDI.

It is clarified that this is a consolidation/compilation and comprehensive listing of most matters on FDI and is not intended to make changes in the extant regulations.

While attempt has been made to deal with the subject comprehensively, if some aspect(s) has been left out then that will continue to be dealt in the current way where it is listed". At another place, the Press Note says “All earlier Press Notes on FDI issued by Department of Industrial Policy and Promotion, Government of India stand rescinded.". This has to be clarified because once all earlier PRESS NOTEs are
rescinded how would the left out provisions being governed in the current way where it is

3. Just as Master Circulars, this Master Press Note has a sunset clause but unlike Master Circulars, the period is six months. The Master Press Note will be reviewed every six months in April and September. We suggest that Review is done every year.

4. There is no amendment yet in the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations 2000 <> permitting an SSI unit to issue equity shares / fully and mandatorily convertible preference shares / fully and mandatorily convertible debentures more than 24 per cent of its paid-up capital subject to compliance of certain conditions even after the DIPP notification and mention in the Master Circular issued by RBI on Foreign Investment in India. The present Master Press Note carries the same view which had been expressed by DIPP before, which as explained above would in conflict to the extant regulations.

5. It is not mentioned anywhere as to from where the expressions not defined in the Master Press Note would derive their meaning from. This has to be mentioned.

6. Definition of Capital has to be as per FEMTIFS. The clarification given about non convertible instruments etc., in definition has to be separated from definition section and given elsewhere.

7. The word Wholly Owned Subsidiary is used at many places in the Master Press Note with suffixes like “in India” or “abroad”. So the definition as given in the Master Press Note needs a relook.

8. Under the definition of SEZ, please replace the words 2005 with 2006 as Special Economic Zone Act is an act of 2005 and not 2006. The SEZ Act and the SEZ Rules, 2006 (“SEZ Rules”) were notified on February 10, 2006.

9. Under Compounding Proceedings, it may be noted that Compounding Authority is already established. So use of future tense should be avoided.

10. „FCCB‟ means bonds issued in accordance with the Foreign Currency Convertible Bonds and ordinary shares (through depository receipt mechanism) Scheme 1993 and subscribed by non- resident in foreign currency and convertible with…………... The word 'with' should be replaced with word “Into”. This would also be in line with the definition of FCCB under the  extant Scheme.

11. We suggest that an index/ table of content is prepared for the Master Press Note for easy reference.


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